Greek Debt Talks Resume With Agreement Seen by End of This Week

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Jan. 18 (Bloomberg) -- Greece and its private creditors are
beginning a final push to renegotiate debt as a member of the
investor group said they are likely to get cash and securities
with a market value of about 32 cents per euro of government
bonds.

'I'm highly confident the deal will get done,' Bruce
Richards, chief executive officer of New York-based Marathon
Asset Management LP, said in a telephone interview yesterday
with Bloomberg Businessweek. The government may forge a deal by
the end of this week after talks resumed in Athens today, a
finance ministry official told reporters in the Greek capital.
He declined to be identified.

Marathon, which has $10 billion under management, is on the
committee of 32 private creditors formed in November to
negotiate with Greece, the International Monetary Fund and the
European Union. It's not a member of the smaller steering
committee directly involved in negotiations. The talks, under
the auspices of the Institute of International Finance, broke
off Jan. 13 resumed today with Greek Prime Minister Lucas
Papademos and Finance Minister Evangelos Venizelos.

Richards, 51, said he expects Greece won't make a 14.5
billion euro ($18.5 billion) bond repayment scheduled for March
20, and that a deal with creditors will be in place before then.
Investors who agree will probably be paid the new package of
cash and bonds shortly after that date, he said.

Talks 'Continuing'

There are still obstacles to concluding what negotiators
term a 'consensual restructuring.' Official lenders may object
if they conclude that the deal would be too expensive for
Greece, forcing the country to go back for more official support
later.

'I can only tell you the negotiations are continuing,'
said Frank Vogl, an IIF spokesman. 'I can't tell you whether
they'll be successful.' The IIF, a global association of
financial institutions, is chaired by Josef Ackermann, the CEO
of Deutsche Bank AG.

Ackermann, 63, told reporters in Frankfurt last night that
there are two weeks to reach an agreement. He said he still
expects a debt deal will be reached, though can't rule out the
possibility of failure.

IIF Managing Director Charles Dallara, 63, and Jean
Lemierre, 61, a special adviser to the chairman of BNP Paribas
SA, are leading the negotiations for the creditors.

Talks on Interest

An agreement reached Oct. 26 called for private holders of
just more than 200 billion euros worth of Greek government bonds
to accept new bonds with a face value of half that amount. As
part of the deal, euro-zone members agreed to kick in 30 billion
euros in unspecified support. That could take the form of buying
bonds from the private holders at 100 cents on the euro in cash,
leaving them with new bonds with a face value of 70 billion
euros.

Negotiations since then have centered on the interest rate
new bonds will pay, with Germany among those insisting on a low
rate and the private creditors demanding a higher one.

The new bonds will probably pay annual interest of 4
percent to 5 percent and have a maturity of 20 years to 30
years, Richards said. They may trade for about half of their
face value, he predicted. Altogether, the net present value of
the deal for the bondholders will be about 32 cents on the euro,
he estimated.

'Best Deal'

Greek two-year notes dropped, pushing the yield up 838
basis points, or 8.38 percentage points, to 172 percent at 9
a.m. London time. It climbed to 184.56 percent, the most on
record, on Dec. 10. The Greek security maturing in October 2022
advanced for a seventh day, with the yield sliding 63 basis
points to a six-week low of 33.18 percent. The price rose to
21.41 percent of face value.

It's not yet clear whether the deal will cover all
outstanding Greek bonds or just those maturing by the end of
2020, Richards said. He also said that the deal probably won't
contain a sweetener to reward creditors in case of a strong
improvement in the health of the Greek economy in coming years.

The tentative deal may win support from investors holding
70 percent to 80 percent of the privately held Greek bonds, he
estimated. He favors the deal, saying that investors who refuse
may get back less.

'There's a very, very high probability that this goes
through,' he said. 'It's the best deal creditors can get.'

Credit Default Swaps

The deal might still trigger credit-default swaps if some
investors refuse to participate or are forced through a so-
called collective action clause, Richards said, declining to say
whether he has purchased swaps that would pay off if triggered
by a deal.

Fitch Ratings has said the October agreement would amount
to a 'default event' once implemented, while the International
Swaps and Derivatives Association has said it wouldn't trigger
credit-default swaps bought by investors as insurance against
the country failing to meet its obligations.

Marathon, which was founded in 1998 by Richards and Louis
Hanover, began in August to raise a new fund to take advantage
of the European debt crisis.

'We're very focused on this opportunity,' Richards said,
declining to discuss the fund or to say how much Marathon has
invested in Greek bonds.